With a possible war in Iraq looming, oil markets are focused on the Organization of Petroleum Exporting Countries (OPEC)'s ability to meet a potential supply shortage if Iraqi exports are halted.

"It seems that OPEC will be able to cover any loss of Iraqi supply in the event of a war. But the latest rise in the group's production suggests that if oil production and exports are disrupted in other countries, OPEC's ability to ensure markets are adequately supplied will be sorely tested," said Global Director of Oil for Platts, John Kingston.

OPEC's eleven members, including Iraq, pumped 27.03 million barrels per day (bpd) in February, 1.32 million bpd up on January's 25.71 million, a Platts survey revealed. Excluding Iraq, the ten members with quotas pumped 24.52 million bpd over the month, pushing production up by 1.31 million bpd from their January level of 23.21 million bpd to meet their collective 24.5 million bpd ceiling, which came into effect at the beginning of February, the survey showed.

Saudi Arabia holds the largest volume of spare output capacity, but this is shrinking as the Kingdom raises output. Some analysts believe Saudi production is currently close to nine million barrels per day.

Saudi oil minister Ali Naimi said late last month that Riyadh was pumping around eight million bpd, close to its OPEC quota and 2.5 million bpd less than its total output capacity of 10.5 million bpd.

Naimi said in January that Saudi production could be raised to close to 10 million bpd within two weeks. Reaching the full 10.5 million bpd would take 90 days, he said. Based on the Platts production estimate of 8.74 million bpd for February, Riyadh's immediately available spare capacity is therefore less than 1.3 million bpd.

Platts soundings among OPEC delegates, industry officials and analysts suggest that Iran, the United Arab Emirates (UAE), Libya, Qatar, Nigeria and Algeria could between them push out an additional 900,000 bpd or so. This would put OPEC's spare capacity at just under 2. million bpd.

Saudi Arabia, which raised output by 450,000 bpd in January, pushed out a further 270,000 bpd in February to average 8.74 million bpd, the country's highest output level since December 2000.

Despite two increases in OPEC's nominal output ceiling totaling 2.8 million bpd this year, OPEC's crude basket has been above the cartel's $22-28 price per barrel (ppb) target band since mid-December. It stood at $32.50 ppb in February. — (menareport.com)